Why Kimberly-Clark Stock Just Dropped
Key Points
Kimberly-Clark will buy Kenvue for $48.7 billion.
A merged Kimberly-Clark-Kenvue could have $32 billion in annual sales and profits as high as $5.5 billion.
At Kimberly-Clark's current $40 billion market cap, this implies a 7.3x P/E ratio on the merged stock.
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Kimberly-Clark (NASDAQ: KMB) stock tumbled 12.5% through 10:25 a.m. ET Monday, and it's not hard to figure out why.
This morning, K-C announced it will acquire Tylenol-maker Kenvue (NYSE: KVUE) in a $48.7 billion cash-and-stock deal, resulting in a powerhouse consumer goods company owning "10 iconic billion-dollar brands" -- and boasting $32 billion in annual sales.
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Kenvue investors are thrilled with the news, which gives them a chance to exit Kenvue and its Tylenol-causes-autism controversy at a profit. Kenvue stock is up more than 16% today on the news.
Kimberly-Clark investors aren't as enthusiastic, and K-C stock is down dramatically. Should they be worried?
Image source: Getty Images.
The merger details
Well, let's consider the details of this merger announcement.
Kimberly-Clark is promising to pay Kenvue shareholders $3.50 in cash, plus 0.14625 Kimberly-Clark shares, for each Kenvue share they own. K-C puts the total value of this consideration at $21.01 per Kenvue share. Closing of the merger is scheduled for some time in the second half of 2026.
Considering Kenvue stock closed at $14.37 last week, that's a sizable premium K-C is paying -- about 46% -- and good reason for K-C shareholders to worry.
Is Kimberly-Clark stock a buy?
And yet, consider also the positives of this merger. Kimberly-Clark estimates that based on current results, a merged Kimberly Clark-Kenvue will generate $32 billion in annual sales, and approximately $7 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The two companies earned a combined $3.4 billion in net profit over the last 12 months. K-C thinks it can wring $2.1 billion in cost synergies out of the merger. Assume those saved costs result in $2.1 billion in extra profit, and "K-C-K," as we might call it, could be earnings $5.5 billion a year on $32 billion in sales.
Relative to K-C's market cap of $40 billion (assuming K-C is the surviving company), this implies a P/E ratio as low as 7.3x on the merged company. To me, that sounds cheap enough to buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
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